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Schools Face Huge Budget Problems Despite $1 Billion Stimulus Boost

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With the federal government handing Illinois public schools more than $1 billion extra this year, you might think it's a good year for schools.

But you'd be underestimating the state's budget problems.

Even with boatloads of economic stimulus money coming from Washington, Gov. Pat Quinn is recommending just 2 percent in additional school funding.

And that's in a budget proposal that counts on raising income taxes and hitting teachers up for more pension support. Lawmakers might very well reject those changes.

President Barack Obama said last week Illinois would get about $3 billion over the next several years for public education as part of his effort to jump-start the flagging economy, including $964 million this spring to cover most of the remaining payments the state owes local districts for this school year.

Illinois has an $11.6 billion deficit, meaning the federal money is far from a cure-all.

The Democratic governor's budget plan for the fiscal year that begins July 1 allows for an overall increase in spending on preschool through high school of $173.4 million - a 2.3 percent bump.

That's not much compared to recent years. From 2008 to 2009, for example, spending increased $339 million, or 4.8 percent.

Still, it beats the rate of inflation, which was just 1 percent in the past fiscal year and is forecast to drop further.

Most educators appreciate Quinn's effort, given the circumstances.

"Quality education is absolutely essential to a long-term economic recovery if we're going to be competitive in the 21st Century, so investing in education is one of the best investments we can make in this crisis," said Ken Swanson, president of the Illinois Education Association, the state's largest teachers union.

Despite the federal aid, Quinn proposes sweeping changes just to keep schools ahead. He wants a 50 percent increase in the income tax rate - along with generous exemptions to help lower-income residents - to raise $3.2 billion for the overall budget.

He suggests reducing pension benefits for incoming teachers and requiring existing ones to pay 2 percent more of their paychecks toward retirement. That would let the state reduce its payment to the downstate teachers' pension fund by $443 million next year.

And he would save $200 million by cutting three dozen grant programs - for class-size reduction, after-school programs and mentoring, and the cherished "hold harmless" provision that prevents any loss of money at schools with declining enrollment.

That grant money would instead be used for general state aid, which would let schools decide how to spend it.

"In a time of limited resources, giving schools the most flexible dollars is the way to go," said Sen. Heather Steans, a Chicago Democrat.

Many of the grant programs have entrenched constituencies that will oppose cutting the money, Steans acknowledged. But holding them off is the least of Quinn's problems.

Pitching the first income-tax increase in nearly two decades has advocates of education funding reform champing at the bit. They've been pushing for years to change the system to make schools less reliant on local property taxes, a system that creates wide disparities in school-district wealth across the state.

They want lower property taxes in exchange for higher income taxes, and their cause got a powerful endorsement last week from Chicago Mayor Richard Daley. Schools need more money than offered, and if income taxes go up, property taxes should drop, he said.

"There's a potential missed opportunity if there's an income tax increase and education doesn't really see any benefit from that," said Rep. Mike Smith, a Democratic education expert from Canton who's favored the "tax swap" and has sponsored legislation to change the income tax system to make it fairer.

The Illinois income tax is flat, meaning everyone is taxed at the same rate, regardless of income. Critics say such taxes create more of a burden on the poor.

Quinn wants a more progressive income tax too, but that would require a constitutional change at the next election.

Meanwhile, he has tried to soften the income-tax hit by suggesting tripling the personal exemption - income sheltered from taxes - from $2,000 to $6,000 a person. That makes the flat-rate income tax fairer to poorer people, but also cuts into the revenue a 50 percent tax hike could generate for schools.

"If we're going to do this and raise income taxes, we should do it in a way that works toward fixing the problem," said Dave Comerford, spokesman for the Illinois Federation of Teachers. "This may just not raise enough revenue to structurally fix it."

Teachers and school administrators are not fond of Quinn's pension design. The state's five pension systems are underfunded by $73 billion, largely because of years in which the state didn't keep up with its payments.

The governor reasons he can reduce deposits in future years by offering less-lucrative retirement benefits to new state employees. Current workers would get the same benefits but have to pay 2 percent more of their salaries toward the fund. For the Teachers Retirement System, covering teachers outside Chicago, that's already 9.4 percent.

"For nearly 30 years, governors and legislatures, Democratic and Republican alike, have raided the pensions by underfunding them," IEA's Swanson said. "Over those decades, we have made very contribution asked of us. We reject the idea that somehow we now should be punished."


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